Shared Ownership is a great way to buy a new home but there are some considerations when it comes to the mortgages you need...

As property prices have pushed the cost of a home out of the reach of many first-time buyers, Shared Ownership schemes have become increasingly popular.

They’re a great option for people who want to get a step on the property ladder, but to finance a Shared Ownership home, you’ll need a particular kind of home loan. So, how do Shared Ownership mortgages work?

What is Shared Ownership?

First things first. Shared Ownership allows you to part-own a property, to help buyers who can't afford to pay the full price for a home.

Under Shared Ownership, you buy a stake between 25% and 75% of the market value of the property by putting down a deposit and using a Shared Ownership mortgage. You then pay rent on the remaining share which is owned by a local housing association.

The rent that you pay can be up to 3% of the housing association's share of the property value. You’ll also have to pay a ground rent and (usually) a service charge for the property, which is normally charged on a monthly basis.

How do Shared Ownership mortgages work?

Buying a Shared Ownership property means you typically have to find a much smaller deposit than if you were buying a home outright. For example, if you were buying a 50% share of a property valued at £150,000 you would only need a deposit of £3,750 (5% of £75,000).

Once you have put down a deposit you will need a mortgage to buy your share of the property. In the example above, to buy a 50% share of a £150,000 home with a 5% deposit you would need a mortgage of £71,250.

While you will often be able to buy with just a 5% deposit, if you can put down a higher deposit you will benefit from lower interest rates. As with other mortgages, the bigger deposit you put down, the cheaper your mortgage will be.

Where can I get a Shared Ownership mortgage?

Despite their increased popularity, not all mortgage lenders offer Shared Ownership mortgages. Around 20 lenders currently offer these products, and they range from major High Street names to smaller local building societies.

Those lenders who offer Shared Ownership mortgages will generally let you choose from their full product range - this is true of Nationwide and Santander - although some may have products specifically for Shared Ownership borrowers.

Smaller building societies, including Melton Mowbray, Cumberland, Newbury and Penrith, often lend to local buyers. If you live in an area with a local society it can pay to speak to them as well as bigger lenders such as TSB or Halifax.